The strategic position of Indonesian small businesses

The strategic position of Indonesian small businesses

By Tony Agus Ardie

JAKARTA (JP): To overcome the negative impact of the economic
crisis in Indonesia, President Abdurrahman Wahid has given first
priority to creating the maximum number of job opportunities.

This policy is indeed strategic and timely to enhance the
productivity of the huge labor force and to promote justice.

It has been known for a long time that the people's economy,
which mostly consists of small and medium enterprises, plays the
role of "safety valve" in avoiding potential economic and social
disturbances. Small and medium enterprises absorb unemployment,
feed families and other dependents, and are reliable taxpayers.

Now it is the right time to transform political will into
political courage, to implement through real policy action that
empowers small and medium enterprises to maintain their
productive capacity.

The majority of Indonesians live in rural areas. Most work as
farmers, fishermen, and laborers with very little entrepreneurial
involvement. The unemployment rate among these groups is high.

To accelerate industrialization, as part of a development
strategy to achieve high economic growth, many new factories were
established in the big cities. As a result, unemployment is
heavily concentrated in the villages. Without sufficient
educational background and skills, workers go to the cities for
job opportunities. The cities have become crowded with helpless
people, causing multi-dimensional urban problems such as crime
and homelessness.

Official statistics show that in 1998, there were 36.81
million enterprises throughout Indonesia, of which 36.76 million
(99.85 percent) were small firms, 51,890 (10.01 percent) medium-
scale businesses and 1,831 (0.14 percent) big companies. Their
employment was 57.34 million, 6.97 million and 0.36 million
respectively.

Small enterprises in the agricultural sector, including
livestock, forestry and fisheries, were the largest employers
with 62.83 percent of total employment in the small-business
sector.

It therefore makes sense that the small-business sector should
be empowered to provide more jobs and to increase the incomes of
the majority of the people.

We must remember, however, that our national development goals
are not only to develop the economy, but to achieve dignity and
prosperity for the people. We have to keep the goals of economic
development in the context of achieving a just and prosperous
society, especially for those who are weak and underprivileged.
The small and weak should be empowered to be more capable of
becoming productive, and at the same time to produce value-added
businesses.

This also will enhance economic justice, the absence of which
is one of the main causes of social unrest in the provinces.

The economic crisis had been exacerbated by the high content
of import components among our big industrialists. Economic
globalization has fostered a more intensive global economic
interdependency. But we have to be cautious that an
interdependency can easily turn into a dependency.

In fact, the high import content of big industries has put
many plants in a lot of trouble as the rupiah meltdown makes
import costs astronomically high, thereby forcing companies to
either slash production rates or stop production altogether.

This means that an emphasis on resource-based businesses will
be more sustainable. As small and medium-scale businesses are
based on domestic resources, they can better weather a currency
crisis.

Using more domestic materials, besides adding value to the
domestic economy, will also spread growth to many sectors.

In addition, the development of small and medium enterprises
is instrumental to increasing the people's productivity, which
further will increase their capacity to meaningfully participate
in the economy. In other words, the national utilization of
domestic and natural resources will certainly find its way into
the small and medium sectors. This implies that economic growth
takes place as a result of an even distribution of socio-economic
opportunities.

The development and empowerment of small and medium
enterprises will not only provide a positive economic impact to
the poor and the weak, but it also will render a positive social
impact -- it is economic value added as well as a socio-cultural
value added. Enterprise improves the socio-economic prospects of
the underprivileged.

One of the biggest challenges to the development of small and
the medium-scale enterprises is the insufficiency of qualified
entrepreneurship capability.

But we believe that entrepreneurial talent can be learnt,
trained and developed, since it is not an inborn quality.

The other important thing is technical assistance in
management, production and marketing. Small and medium-scale
entrepreneurs must learn to understand the merits of competition.

But they certainly have to learn and understand the power of
cooperation. Competition and cooperation are the twin economic
powers which continuously move the economy. We have to refuse
competition which produces free-fight liberalism. We have to
cooperate to manage competition -- this is what we will call
cooperation.

Indonesia has always accepted and implemented a market economy
with different degrees of state intervention. What we reject is
an unfair free market economy which leads to the practices of
unjust free-fight competition. We must be cautious and remember
that the market is only an economic instrument, not the economic
master.

The government must constantly manage the market, and
especially intervene in the resource allocation process to
promote prosperity among the poor and the underprivileged. State
intervention is necessary to overcome structural rigidities and
to maintain the public interest.

First of all, we must build vertical and horizontal links and
networks to consolidate all economic forces -- the small, the
medium and the large entrepreneurs -- into a united and solid
national economic entity.

Big businesses should not grow in isolation and become a
closed economic enclave. They should continuously engage in
mutual cooperation with small and medium-scale economic forces to
face global challenges together.

Whatever the business, several important socioeconomic targets
can be achieved through the promotion of small and medium-scale
enterprises. These include; the development of regional and sub-
regional economic potential to generate income; the creation of
employment opportunities; the prevention of urbanization; and the
strengthening of regional and sub-regional competitive
advantages.

The people's economy, which mostly consists of small and
medium-scale enterprises, has proven its resilience and
sustainability.

In time of economic stagnation and crisis, most small and
medium-scale enterprises have been capable of providing
affordable basic needs for the people. An empowerment policy for
small and medium-scale enterprises is therefore imperative.

The writer is the president of the Indonesian Chamber of
Commerce and Industry U.S. Committee which focuses on the
development of business links between Indonesian and American
companies.